Bishnu, Monisankar and Ghate, Chetan and Gopalakrishnan, Pawan (2011): Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change.
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We construct a model of endogenous investment specific techological change in which the stock of public capital influences the real price of capital goods. We show that the growth and welfare maximizing tax rates coincide in the planned economy. When factor income taxes finance public investment infintely many tax-subsidy combinations can decentralize the planner's allocations. The optimal capital income tax can be positive in this environment. We then augment the model to incorporate administrative costs. A unique combination of factor income taxes now decentralizes the planner's allocations. A simple calibration exercise suggests that changes in factor income taxes does not cause a significant change in the optimal growth rate or welfare. Our framework broadens the environment in which investment specific technological change occurs, and characterizes the role of optimal factor income taxation in raising long run growth and welfare.
|Item Type:||MPRA Paper|
|Original Title:||Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change|
|Keywords:||Investment Specific Technological Change; Endogenous Growth; Capital Income Taxation; Public Policy; Administrative Costs|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
H - Public Economics > H2 - Taxation, Subsidies, and Revenue
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Chetan Ghate|
|Date Deposited:||14. Oct 2011 14:18|
|Last Modified:||19. Feb 2013 07:19|
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